Telecoms: a trendy
investment target again?
The way forward
Can regulation help?
Budapest, December 4th 2013
Fastweb’s unique positioning in the NGA market
1.8 million households passed by proprietary
FTTH in 7 cities
Extensive LLU coverage in over 1000 local
exchanges
Bergamo
Brescia
Milano
Pisa
Livorno
Thanks to end-to-end control of infrastructures,
first operator in itlay to launch 20 Mb/s service
and 100 Mb/s (in 2008)
Since 2012 first Altnet in Europe to massively
deploy FTTC: 3.5 million households covered by
2014 in 20 cities
Trieste
Verona
Padova
Reggio Emilia
Venezia
Bologna
Ancona
Firenze
Roma
Bari
Napoli
2,5 Mln
Tablet WiFi
FW FTTS
footprint
Palermo
2,3 Mln
Connected TV
FW FTTH
footprint
Would the Connected Continent package
foster investments?
The assumptions
 Telecom sector declining in Europe, while growing steadily in other areas of the world, due to
“too many operators” and too much regulation…
 Sector profitability and investments can be boosted by supporting consolidation and reducing
competition through
 more relaxed rules on SMP and
 by privileging VULA versus physical access
Measures proposed would increase the market power of incumbent operators and limit the
possibility of infrastructure-based competition by Altnets
The new approach to identify relevant markets will
progressively reduce the scope of access regulation
Considering LTE as a competitive constraint
would impact on the identification of
markets subject to ex-ante regulation even in
countries with low or no cable penetration.
Reducing the scope of access regulation will
eventually lead to re-monopolization of fixed
market in many countries and/or regions.
Fixed broadband would be offered by one,
maximum two operators (incumbent/cable)
in most countries
Are we going back to square one?
one?
Favoring virtual vs. physical access provides vertically
integrated operators a monopoly in deploying NGA
FTTS - the new paradigm for NGA deployment - requires Altnets to deploy fiber only to the cabinet and
use the legacy copper network from the cabinet to the user premises
Unlike FTTH, FTTC is quick to roll out and financially sustainable also for operator with a limited market
share. Altnets can play this game!
Fiber (1500 m)
FTTH
Street cabinet
FTTC/FTTS
fiber
copper sub-loop (400 m)
Limiting access to sub-loop would curb Altnet’s capability to deploy NGA and reduce
infrastructure-based competition in NGA
Will consolidation and a reduced competition
support profitability and increase the
incentives to invest?
Performances of fixed operators in EU and US are
comparable Ebitda on sales – 2012 (fixed operations only)
60%
50%
40%
48%
38%
30%
30%
31%
27%
21%
20%
10%
0%
Telecom Italia Telefonica
Deutsche
Telecom
Source: Deutsche Bank 2012; Bernstein Research 2012
France
Telecom
At&t
Verizon
Source: At&t Financial report , Verizon financial report
Limited competition determines low degree of
innovation…
Areas not covered by BB
Areas covered by a single DSL
provider
Areas covered by more than one
provider
• Most US users have a very limited choice of
one DSL provider and one cable operator
• Extended areas not reached by any DSL
provider
Areas covered by fibre
• FTTx connections are only 2% of total (OECD,
2012)
Limited competition doesn’t seem to imply
higher profitability or more investments…
Source FCC broadband maps www.broadbandmap.com
9
… high retail prices for comparatively poor services…
Cheapest broadband package available*
AT&T
VERIZON COMCAST
Advertised
speed
3 Mbps
1 Mbps
Intro
price/month
29,95 $
19,99 $
Standard
price/month
41,00 $
n.a.
Usage
cap/month
250 GB
Source: operators’ commercial websites – 16th July 2013
TWC
20 Mbps
1 Mbps
39,99 $
19,99$
42,95-64,95 $
n.a.
-
-
Retail prices higher than in EU, also for
basic speeds
Highest speed broadband package available*
AT&T
Very limited availability of
ultrabroadband packages, at very
high prices
TWC
Advertised
speed
24 Mbps
150 Mbps
105 Mbps
50 Mbps
Intro price/mo
54,95 $
134,99 $
89,99 $
74,99 $
Standard
price/mo
66,00 $
134,99 $
114,95 $
n.a.
-
-
Usage cap/mo
*All prices exclude local taxes
VERIZON COMCAST
250 GB
Source: operators’ commercial websites – 16th July 2013
…and business models that will reduce the degree of
innovation
Thanks to limited competition, fixed
broadband providers are increasingly
moving away from flat fees and
introducing data caps, at the expenses of
consumers and innovation
…but it’s definitely bad news for end users.!
The other side of the story: the critical role
of Altnets in triggering the race to fibre
Competitive pressure is the only driver for investments in
NGA
Most EU countries feature low or no cable penetration: reducing Alnets capability to
compete effectively would destroy any incentive for the incument to deploy NGN
HH planned to be FTTH ready by 2012
(000)
Telecom Italia’s planned FTTH coverage for 2012 based on
2009-2012 TI’s plans
1200
1000
980.00
800
600
400
295.70
266.30
200
34.45
0
jan-10
dec-10
aug-11
FTTH Investment planned for 2012
9.5
9
8.5
8
7.5
€
7
6.5
6
5.5
5
The italian case is the perfect example: despite
LLU price increase in 2009-2012 (and therefore
increased profitability), TI plans to deploy
FTTH have been constantly reduced and
eventually completely scrapped….
feb-12
LLU price
For former monopolist, first best is maintaining the status quo and leveraging existing asset, not
investing in NGN….
Fastweb FTTC plan: a game changer
In 2011 Fastweb started to develop a plan to deploy FTTC to increase its existing FTTH NGA
footprint
Negotiation with Telecom Italia were launched to access street cabinet.
Fastweb’s plan to massively deploy FTTC in 20 italian cities (increasing its overall FTTx coverage from
2 mln hh to 5.5 in 2014) played a key role in shaping Telecom Italia’s own NGA plans
Telecom Italia developed
its own plan to roll-out
FTTC, overlapping
existing and planned
Fastweb’s NGA footprint
Telecom Italia and
Fastweb signed an MoU
to reach synergies in the
deployment of their
respective FTTC networks
In september 2012
Fastweb and TI
announced final plans to
deploy parallel FTTS
networks.
Thanks to its FTTC network Fastweb offers speeds three
times higher than Telecom Italia
>70
Mbps
Average downstream
for 80% of active
FTTC customers
>90
Mbps
Average downstream
for 40% of active
FTTC customers
15
November 2013: Vodafone joins the race to fiber!
1,8 billion€ earmarked to develop
fixed and mobile NGA in Italy (3.6b
in the next two years)
On top of already planned LTE
investments, Vodafone will dedicate
part of the resources to cover 150
italian cities with FTTC, with the
objective of reaching 6,4 milions of
hh (25% of the population)
Competition and availability of physical
access services are key to create the right
incentives for investments
No virtual product can be equivalent to physical access
Access to LLU/SLU
• Altnets can provide BB and
UBB services beyond the
incumbent’s footprint
• Altnet choose the active
technology (VDSL, Vectoring,
G-Fast etc.)
• Altnets can upgrade speed
an QoS any time they want
• Altnets free to install
technical equipment of their
choice
Virtual access
• Altnets are limited by the
incumbent VULA’s
geographical coverage
• Incumbent decides
technology: altnets cannot
install any equipment that is
different (more performing)
than incumbents’
• Altnets’ can chose the
performance to offer to endcustomers within a predetermined and limited range
of speeds and QoS features
Physical access services are key enabler of
infrastructure-based competition
• LLU played an essential role in allowing
Altnets to compete effectively with the
incumbent and to innovate
• Thanks to its end-to-end control of the
network Fastweb was able to offer higher
speeds and better QoS than the incumbent on
copper lines, compete on differentiation
(rather than prices),
• SLU will enable Fastweb and other Altnets to
invest in FTTC to apply the same competitive
pressure on NGA products
Maintaining SLU and setting the right price will be
critical to maintain the right incentive to invests for all
SLU and vectoring can coexist!
Speeds enabled by non-vectored
VDSL2+ are in many cases already in
line with DAE targets
Multi-operator vectoring is a reality
and can be easily achieved through
the right regulatory policy!